Unformatted text preview: buckets While key rate analysis tends to use a relatively small number of key rates. Each bucket shift is a parallel shift of forward rates as opposed to the shapes of the key rates Swaps are agreements to receive or pay fixed cash flows for a particular set of terms. They can be executed at very low bid-ask spreads, but can be very costly to unwind. The practice of accumulating swaps leads to large portfolios that change in composition very slowly. Immunization – holding a portfolio of assets with cash flows that exactly offset the company’s future expected liabilities. Feasibility of immunization depends on the circumstances, one extreme is hedges that protect against parallel shifts, other extreme is bucket exposures....
View Full Document
This note was uploaded on 12/15/2011 for the course ECON 101 taught by Professor Mimir during the Spring '11 term at Maryland.
- Spring '11